restaurants - All posts tagged restaurants

Yum Brands (YUM) rose 3.5% today after the restaurant company bested second quarter profit projections, with better-than-expected margins offsetting a soft top line. But investors are more impressed with the improving same-store sales trend in China and the lifted full-year guidance.

McDonald’s said late Wednesday that CEO Don Thompson will leave his post March 1 as the company struggles to meet changing consumer tastes.

He will be replaced by the Golden Arches’ chief brand officer, Steve Easterbrook. McDonald’s also appointed Google (GOOG) executive Margo Georgiadis to its board Wednesday, the Chicago Tribune reports.

Shares of McDonald’s (MCD) rose more than 3% in after-hours trading. The stock is down 6.3% in the past month, and has tumbled 5.7% over the past 12 months.

Once a hot dog cart in Madison Square Garden, the Shake Shack has grown into a chain of 63 burger joints famed for whipping up a mean milk shake.

Now, it wants to become the latest fast-casual eatery to go public. The Wall Street Journal reports that the Shake Shack has filed for an initial public offering, stating in regulatory documents that it could sell up to $100 million in class A shares and use the proceeds to renovate and grow its restaurant base and repay previous investors. As the WSJ reports:

…founded by New York restaurateur Danny Meyer, chief executive of Union Square Hospitality Group LLC, which runs restaurants including Gramercy Tavern and Union Square Cafe. Shake Shack will pay about $22 million to certain original owners, such as Mr. Meyer, who will get Class B shares. As part of its filing, Shake Shack disclosed financial information for the first time. Its revenue last year surged 45% to $82.46 million, while its profit increased 31% to $5.42 million. Expenses, meanwhile, increased 46%. The company indicated, however, that its same-store sales growth has moderated this year, rising in the low-single-digits in the first three quarters of 2014. Shake Shack has applied to list on the New York Stock Exchange under the symbol “SHAK.”

Cheesecake Factory (CAKE) took a pie in the face. The restaurant chain’s share price fell more than 5% afterhours after earnings missed the company’s own forecast and revenue fell short of Wall Street estimates.

The earnings disappointment overshadowed a 17% dividend hike, and news that the company expanded its share repurchase program by 7.5 million shares to 48.5 million shares. Cheesecake Factory now plans to spend as much as $125 million buying back stock by the end of the year.

At $39.50, the shares fell $2.40 or 5.7% after the closing bell. Through Wednesday’s close at $41.90, the stock has risen 28% since the start of the year.

It’s been a rough week for rstaurant stocks, starting Monday when McDonald’s (MCD) released disappointing results. disapponted. Last week, Raymond James analyst Bryan Elliott unveiled last week an increasingly cautious stance on the wider restaurant industry citing rising evidence of a deterioration inspending in restaurants over the past four to six weeks. Elliott wrote:

With roughly 160 namesake restaurants and 15 Grand Lux Cafes, Cheesecake Factory has outperformed rivals by using its broad menu and upscale decor to shield its profit margin and improve customer traffic.

The company still expects to open as many as ten new restaurants during the current fiscal year, including a new namesake restaurant in the Middle East.

Nevertheless, its Grand Lux chain hasn’t been as initially expected, leading to some closures. Also, cutbacks in consumer spending and slow real-estate development amid a sluggish economic recovery have limited the company’s ability to open new restaurants quickly.

During the porevious quarter, Cheesecake Factory earned $28.6 million, or 52 cents a share, compared with $28.4 million, or 52 cents a share, a year ago. Excluding charges, earnings were 54 cents a share, compared to 51 cents a share last year, adjusted for proceeds from a variable life insurance contract.

In April, the company in April had said it expected per-share earnings between 55 cents and 57 cents.

Late Tuesday, the sandwich shop chain reported second-quarter earnings excluding items of $1.74 per share, up from $1.50 a share in the year-earlier period. Revenue increased to $589 million from $531 million a year ago.

Analysts had expected the company to report earnings of $1.77 a share on $596 million in revenue, according to a consensus estimate from Thomson Reuters.

Last week, Raymond James analyst Bryan Elliott unveiled an increasingly cautious stance on the wider restaurant industry citing rising evidence that spending in restaurants hsa weakened over the past four to six weeks.

Earlier this week, fast-food giant McDonald’s (MCD) surprised investors by reporting slower-than-expected earnings per share growth and shrinking profit margins. U.S. same-store missed expectations. And CEO Don Thomson warned that results for the rest of 2013 are likely to remain a challenge.

But earlier today, Wendy’s (WEN) rose more than 8% to close at $7.23 after posting better than expected earnings.

McDonald’s (MCD)isn’t the only restaurant stock on a downward slide today.

Worried by the fast food giant’s disappointing earnings report that the U.S. economy has stalled, investors took a bite out of restaurant stocks during morning market action, with the Dow Jones U.S. Restaurant and Bar index falling 1.2%.

McDonald’s led the downhill charge, falling 2.7% to $97.58. The company surprised investors by reporting slower-than-expected earnings per share growth and shrinking profit margins. U.S. same-store missed expectations. And CEO Don Thomson warned that results for the rest of 2013 are likely to remain a challenge.

Shares of Burger King (BKW) fell 1.6% to $19.40, followed by a 1.4% drop by Chipotle Mexican Grill (CMG). Ruth Hospitality Group (RUTH) declined 1.5%% to $12.45. And Brinker International (EAT) fell 0.95% to $39.46

McDonald’s was a surprise. As the WSJ ‘sAhead of the Tape column pointed out Monday morning, “it’s tough to bet against McDonald’s” given its past ability to gain market share and tame costs, not to mention the stock’s dividend yield.

But Raymond James analyst Bryan Elliott unveiled last week an increasingly cautious stance on the wider restaurant industry citing rising evidence of a deterioration inspending in restaurants over the past four to six weeks. Elliott wrote:

This sales deterioration follows a period of stable, slightly positive growth that was in place for most of the past year (outside of the weather-induced noisy 1Q13). The combination of deteriorating comp trends coupled with the group’s extended valuations has created a more negative near-term risk/reward ratio, in our view. We thus suggest investors reduce some of their exposure to restaurant stocks at this time.

Tarantino writes that last month’s data points to slightly improved trends for demand; while restaurants face some difficult comparison in the coming months related to weather, he writes that “we think most chains are on track to reach estimates and believe that the underlying demand trend (ex-weather) can remain healthy into 2013.”

The sequential improvement from October was driven largely by better performance for casual dining (comps up 1.5%+ after down slightly in October), directionally consistent with the rebound seen for the Knapp-Track benchmark (November +0.7% after October -0.9%). We were not overly surprised to see casual dining rebound, given our view that trends in recent months were dampened by some transitory factors (election cycle, Olympics).

Fast-casual comps were near +6-7%, remaining healthy and near- to modestly better than the strong level seen in October.

The majority of chains (53%) indicated that comps were roughly consistent throughout the month.

However, Tarantino notes that the coming months could be difficult for restaurants, as they face average comp deceleration of 50-100 basis points, given weather benefits in 2011.

Nonetheless, the 2013 outlook is bright: On a combined basis, the restaurants surveyed are expecting comps to grow2.5% to 3.0% for the year. This includes average pricing of just under 2%, as restaurants are planning to pass cost pressures onto consumers—despite this, margins are still projected to be largely flat year-over-year.

Goldman Sachs surveyed 2,000 people about restaurants in May and June, and researched recent restaurant marketing trends. Here are some of the things they found:

Upper income households are feeling optimistic, but upper middle class consumers are more pessimistic, which could spell trouble for mid-level casual dining establishments. In fact, it appears some core casual dining consumers are trading down to fast-food.

Advertising is on the upswing at restaurants, with some companies being left behind. Wendy’s (WEN), for instance, may be “underinvesting.”

Chipotle Mexican Grill (CMG) is now the highest-rated quick-service restaurant brand. “We see (1) the brand’s overall strength, combined with (2) the fact that it is still at only 55% national brand awareness and (3) consistently strong underlying key indicators such as return on invested capital, new unit productivity and traffic trends as support for our long-term bullish thesis for the shares.”

At Darden Restaurants (DRI), the “value scores” for struggling Red Lobster and Olive Garden chains are “on the rise”.

IHOP and Applebee’s, owned by Dineequity (DIN), are showing some “concerning trends” and may not be advertising enough.

Domino’s Pizza (DPZ) could see U.S. momentum slow “given resurgent competitors. Papa Johns and Pizza Hut were #1 and #2 in our survey in terms of improved scores in the second quarter vs. their prior year’s average.”

About Stocks To Watch

Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.